Eckoh PLC

Eckoh Plc (ECK) is a Hemel Hempstead, the United Kingdom-based provider of secure payments products and client contact solutions for consumer contact centres in the United Kingdom, the United States, and globally. The company also offers the integration, multi-channel and PCI DSS (Payment Card Industry Data Security Standard) payment solutions for contact centres. The company’s geographical operations are differentiated into two segments being Eckoh UK and Eckoh US. The group also provides secure payment solutions by CallGaurd and EckohPAY. The company offers client engagement solutions, such as chatbots, visual and hosted interactive voice response, natural language speech recognition, and verification and identification and instant call back, Web chat, a social media agent, smart SMS, co-browsing, and external knowledge base.

Financial Highlights (FY2019, £million)

(Source: Full Year Results, Company Website)

The company’s new business contracted increased by 47 per cent to £22.6 millionas compared with the financial year 2018 of £15.3 million. Reported total contracted business (including renewals of existing client contracts) surged by 62 per cent to £32.7 millionagainst the £20.2 million in FY18. Total revenue for the FY19 was £28.7 million, an increase of 5 per centas compared to £27.2 million in FY18, driven by the rise in both the US and UK operations.

On a constant currency basis, revenue was up by 5 per cent. Recurring revenue rose by 100 bps to 83 per cent as compared with the previous year data. Deferred revenue climbed by 44 per cent to £14.6 million, due to the impact of IFRS 15 and business wins.

Adjusted EBITDA decreased by 16 per cent to £4.3 million as compared with the financial year 2018 of £5.1 million, representing a strategic surge in headcount and increase in investment in Marketing, Sales, and IT of the recognition of deferred revenue under IFRS 15. Profit before taxation increased by 7 per cent to £1.2 millionagainst the £1.1 million in FY18. Diluted and basic earnings per share decreased to 0.36 pence and 0.37 pence respectively.

The company proposed a final dividend per share of 0.61 penceas compared with the financial year 2018 data of 0.55 pence. Net Cash stood at £8.3 million in the current financial year.

Share Price Performance

Daily Chart as at June-17-19, after the market closed (Source: Thomson Reuters) 

On 17th June 2019, ECK shares closed at GBX 45.25 and increased by 0.556 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 45.95/GBX 32.50. The company’s stock beta stood at 0.15, reflecting lower volatility of the stock as compared to the benchmark index.

Valuation Methodology


Conclusion
The company has delivered decent growth in the financial year 2019, due to an increase in the US and UK business operations. The group have high client customer rates and will deliver excellent future growth. The company has signed with Premier Inn for the largest UK contract renewal in FY2020.

In the financial year 2019, the company reported high recurring revenue, which resulted in the growth of the new business. The group provides outstanding revenue visibility for the year and reinforce the Board’s sureness that the long-term projections for Eckoh remain positive.

Based on the decent growth prospects of the company and the valuation done using the above method, we have given a “Speculative BUY” recommendation at the closing price of GBX 45.25 (as on 17th June 2019) with single-digit upside potential based on 20.41x NTM EV/EBITDA (approx.) on FY20E EBITDA (approx.).
 

Accrol Group Holdings PLC

Accrol Group Holdings Plc (ACRL), is a United Kingdom-based self-governing tissue converter manufacturing company.  The company provides facial tissues, toilet rolls, kitchen rolls, and AFH (away from home products). The company subsidiaries include Accrol Holdings Limited, Accrol Papers Limited, and Accrol UK Limited. The company was formerly known as Accrol Group Holdings Limited.

Trading Update (FY 2019)
On a like for like basis, total revenue stood at £119 million, and remained flat against the previous year. In toilet roll products, sales increased by 12 per cent to £85 millionas compared with the financial year 2018 of £76 million. Adjusted EBITDA stood at £1 million.  

Adjusted loss before tax was predictable to be in the range of £2.5-£3.0 million. Exceptional costs were expected to be in the range of £7.5-£8.0 million. At the end of this financial year, net debt was £27.1 million, a decline of £2.5 million as compared to £29.6 million in FY18., due to the company comfortably fulfilled on its banking commitments.

Recent News
On 10^th April 2019, the company announced that John Pilkington is a new Group Finance Director.

Financial Highlights (H1 FY2019, £million)

(Source: Interim Report, Company Website)

The company’s reported revenue decreased by 20.3 per cent to £57.6 millionas compared to £72.3 million in H1 FY18. Consumer revenue, excluding discontinued AFH revenue, stood at £53.9 million.  Adjusted gross margin decreased by 0.7 per cent to 17.2 per cent against the 17.9 per cent in H1 FY18, due to a price surge in average tissue prices.

Adjusted EBITDA loss declined to £1.1 millionas compared to the loss of £4.5 million in H2 FY18. Revenue from the core customers rose by 11 per cent to £52.5 million.

Reported loss before tax was £9 million. Reported net debt decreased by £6.7 million to £22.6 millionas compared to £29.3 million in H1 FY18. Basic and diluted loss per share fell from 0.05 pence in H1 FY18 to a loss of 0.04 pence in H1 FY19.

Share Price Performance

Daily Chart as at June-17-19, after the market closed (Source: Thomson Reuters) 

On 17th June 2019, ACRL shares closed at GBX 28.50 and increased by 2.703 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 29.88/GBX 10.55.

Key Risks and Uncertainties
The loss of a major customer; Parent Reel and pulp capacity and pricing; New entrant into Market; Winning a large customer contract; Volatility of foreign exchange rates; the group relies on IT systems in its day to day operations; and Failure to adhere to regulatory requirements such as taxation, the Data Protection Act, Health and Safety and Fire safety regulations in particular.

Conclusion
The company’s Board is positive about the outlook and expects to deliver profit for the financial year 2019, all things remaining equal.Although the company’s revenue and bottom-line numbers decline in H1 FY 2019, the profitability margins are in a negative zone except for gross margin.

The company operates in a household industry which requires continuous investment, sometimes at the cost of profitability, to stay ahead of competitors.

Keeping in mind the weak relative valuation of the company and weak financial performance, we recommend investors to keep a cautious “Watch” on the stock at the closing price of GBX 28.50 (as on 17th June 2019), while we look for any upcoming catalysts.
 
*All forecasted figures and Peer information have been taken from Thomson Reuters.

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